Oil erases gains even as ministers say output cuts will continue

By Alex Longley and Ben Sharples on 1/22/2018

LONDON and HONG KONG (Bloomberg) -- Brent crude declined even after Saudi Arabia and Russia pledged over the weekend to continue oil supply cuts.

Futures in London slipped 0.2%, erasing earlier gains. Output limits should remain through 2018 as re-balancing may be achieved next year, Saudi Arabia’s Energy Minister Khalid Al-Falih said in a Bloomberg television interview held with his Russian counterpart on Sunday. Russia is prepared to cooperate with OPEC after the current curbs expire, Energy Minister Alexander Novak said. Neither minister said whether the cuts would continue next year.

Benchmark Brent has eased after supply curbs by the Organization of Petroleum Exporting Countries and its allies to reduce a global glut earlier this month pushed prices above $70/bbl for the first time since December 2014. Banks including Citigroup Inc. and JPMorgan Chase & Co. predict the coalition may begin winding down cuts from the middle of the year, before a scheduled end in December, as the market re-balances. There was no sign of such a move at this weekend’s meeting between OPEC members and some of their allies in Oman.

“We already knew that the Saudis would like to have more permanent cooperation in the oil market,” said Torbjorn Kjus, chief oil analyst at DNB Bank ASA. “Al-Falih wants more stability and more control over the oil market.”

Brent for March settlement fell 14 cents to $68.47/bbl at 1:01 p.m. on the London-based ICE Futures Europe exchange. The contract closed 1% lower at $68.61 on Friday, falling for a second day. It traded at a premium of $5.27 to March West Texas Intermediate.

WTI for February delivery, which expires Monday, slipped 6 cents to $63.31/bbl on the New York Mercantile Exchange, after falling 1.5% last week. Total volume traded was at about 20% below the 100-day average. The more-active March contract fell 10 cents to $63.21.

OPEC and its allies see merit in maintaining their output limits into 2019, Oman Oil Minister Mohammed Al Rumhy told reporters before a meeting to assess compliance with the accord. The compliance rate among all participants in 2018 will beat the 107% average in 2017, Saudi Arabia’s Al-Falih said.

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